Toll To Buy Homebuilding Business Of Shapell For $1.60 Bln, Q4 Revenue Surges

(RTTNews) - In a bid to expand its presence in California, luxury homebuilder Toll Brothers (TOL) late Wednesday announced a definitive purchase agreement with Shapell Industries to acquire its home building business in a stock acquisition for about $1.60 billion in cash. Separately, the company announced preliminary fourth quarter results, showing a surge in revenues.

According to Toll Brothers, Shapell's land portfolio that it is acquiring consists of 5,200 home sites, 97.5 percent of which are entitled, in established communities. This land was assembled over many decades in many of the state's most affluent and high-growth markets such as the San Francisco Bay area, metro Los Angeles, Orange County and the Carlsbad market.

Through August 31 of calendar year 2013, Shapell, a private California builder, delivered 347 homes at an average price of $791,000.

Toll Brothers entered the California market in 1994. Since then, it has delivered over 7,700 homes, generating $6.5 billion in revenue from more than 90 communities in the state. The homebuilder currently offers homes in 9 communities in the affluent Coastal California markets at an average price of $1 million.

The 5,200 lots Toll Brothers expects to acquire from Shapell would bring its total lots owned and controlled in California to around 9,200. The company expects the deal to provide significant growth over the coming years and to be accretive to earnings in the first year, excluding transaction costs.

Douglas Yearley, Jr., Toll Brothers' CEO, said, ''Shapell's current portfolio dovetails perfectly with our own California footprint and luxury brand, and adds meaningfully to our presence in premier coastal locations in California."

Toll Brothers intends to finance the deal with draws from its existing $1.035 billion credit facility as well as debt and equity financing. In addition, it has received a supplemental commitment for a $500 million, 364-day senior unsecured revolving credit facility.

The company expects new equity financing to represent 10-15 percent of the purchase price. Once the transaction is completed, the company still expects to have over $1 billion of available liquidity.

After closing of the deal, Toll Brothers plans to selectively sell land of $500 million. As a result of these lot sales and delivery of existing backlog, the company expects to receive a significant return of its investment within eighteen months of closing the transaction.

The transaction is expected to close in the first calendar quarter of fiscal year 2014. Separately, the Shapell family will retain ownership of its retail, commercial and multi-family businesses through other entities.

In a separate statement, Toll Brothers announced preliminary fourth quarter results for revenues, contracts and backlog.

Quarterly revenues increased significantly to $1.04 billion from $632.8 million in the prior year. On average, 19 analysts polled by Thomson Reuters expected revenues of $921.03 million for the quarter.

Yearley, Jr. added, "Our strong results this quarter stem from our continuing focus on increasing production to meet the surge in our backlog. The price increases we have been instituting in many communities over the past year, combined with the acceleration in sales paces per community, are driving our revenue growth."

Homebuilding deliveries climbed to 1,485 units from 1,088 units. The average price of homes delivered grew to $703,000 from $582,000.

Net signed contracts improved to $839.0 million and 1,163 units from $684.1 million and 1,098 units, respectively.

According to the company, on a per-community basis, fourth-quarter net signed contracts of 5.17 units per community were the highest for any fourth quarter since fiscal year 2005.

The average price of net signed contracts was $721,000, compared to $623,000 last year.

The company's cancellation rate was 5.5 percent, compared to 4.6 percent in the previous year.

Robert Toll, executive chairman, noted that the housing industry is still in the early stages of recovery. New home production remains well below volumes needed to meet current demand, he added.

TOL closed up 0.9 percent on Wednesday at $32.52.